Euro Futures Volatility Forecast (10/07/2011)

The last week we forecasted a bearish movement of Euro futures whilst the suggested profit target for potential short positions was within the 1.4300 – 1.4350 and our analysis proved very profitable and reliable once again. Particularly, the market opened at 1.4497 dropped to 1.4387 on Tuesday, closed at 1.4283 on Wednesday, touched 1.4328 on Thursday and plummeted to 1.4226 on Friday: a great trade!!!

The actual volatility is 0.7% (11.1% annualised) and the TGARCH plot is visibly displaying a downward sloping curve highlighting that the conditional variance should probably diminish over the next trading hours. Consequently, a plummeting volatility is a signal that the bear movement of Euro futures ran out of steam and that the price action should now be able to recover.

Furthermore, the 1.4120 is a crucial level and, in the past, proved to be a fairly stable support which has been broken only after several attempts, which lasted even 2 weeks. Also, Euro futures recovered very quickly all the time they broke through the aforementioned threshold meaning that many investors and traders need a very good fundamental reason to keep shorting Euro at this point.

Moreover, many market participants should now decide which of the 2 most important currencies in the world is the one more jeopardised by the post-crisis effects: US or Europe?

Since the future does not appear to be sparkling for both US and EU, at least in the short term, investors and traders will have to decide which is the least painful between the hammer and the anvil.

The HyperVolatility team is moderately bullish Euro futures because the plummeting in the price action did not produce much variance meaning that many market participants did not close their long positions or at least did not reverse them, hence, we are expecting a low volatility environment which should push the price back into the 1.445 – 1.45 area by Friday.

Lately, under a macroeconomic point of view we think many investors got used to Portugal’s sovereign debt problems and Greece instability but the US disappointing job figures were not expected by so many people.

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